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Monday, September 19, 2011 12:54 AM

Home Prices Rise in All 70 Monitored China Cities;Local Governments Rely on Ponzi Land Sales to Pay Mounting Debt;Tightening Concerns Hit China Stocks

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The housing bubble in China blasts ahead full steam even if the Chinese stock market is not.

Please consider China Home Prices Rise, Challenge Curbs

China’s August new-home prices rose in all 70 cities monitored for the first time this year, undercutting government efforts to cool the market through higher down-payments and mortgage rates.

Prices in Beijing rose 1.9 percent from a year ago, while those in Shanghai, the nation’s financial center, increased 2.8 percent, the statistics bureau said on its website yesterday. New home prices rose in 67 out of 70 cities in the first half this year and were up in all but two in July.

China’s measures to control its property market are at a critical stage and the nation needs to focus efforts on curbing price increases in less affluent cities after limiting home purchases by each family in metropolitan areas including Beijing and Shanghai, Premier Wen Jiabao said on Sept. 1. Only two cities responded to the government’s July call for added restrictions on housing purchases, as local governments rely on land sales to pay mounting debt.
Local Governments Rely on Land Sales to Pay Mounting Debt

Read that last paragraph above carefully. Local governments have ignored central authority calls to restrict housing because fueling the housing bubble is the only way local governments can pay interest on debt.

Thus, the China property boom has gone beyond bubble to an outright Ponzi scheme.

China Stocks Hit 14-Month Low

Bloomberg reports China’s Stocks Decline to 14-Month Low on Tightening Concern, Pending IPOs
China’s stocks fell to a 14-month low after Premier Wen Jiabao said the government will take measures to control inflation and investors speculated pending initial public offerings will sap demand for existing equities.

“The upcoming big IPOs are a major reason for the market plunge, draining liquidity in the market,” said Tu Jun, a strategist at Shanghai Securities Co. “It’s not a good time for fund-raising but the government’s tight monetary policy has left companies with no other choice.”
Tight Money Policy?!

Good Grief. Credit in China is soaring. Home prices are booming. Local governments are lending money for housing in spite of requests by central authorities to not do so.

How can anyone get "tight money policy" out of those conditions?
Economic Challenges

China shouldn’t ease its monetary policy and could face vicious inflation if it does, the Oriental Morning Post said today, citing Wu Xiaoling, vice director of the finance and economy committee of the National People’s Congress. China’s economic growth faces large challenges in the fourth quarter and next year as the global economic recovery slows, the newspaper said.
China Overheating

Those looking for inflation can easily find it, in China.

However, nearly everyone is looking at the US where inflation is nowhere to be found (at least from a credit aspect, housing aspect, and interest rate aspect) all of which are far more important than nominal price moves of food and gasoline.

Of course inflation is not about rising prices in the first place, but rather about credit and credit-marked-to-market.

"No New Stimulus" Warning

Former Deputy Central Banker pleads "No New Stimulus"
China should refrain from boosting credit and fiscal spending again as stimulus measures to avoid fueling inflation and pushing up government debt, Wu Xiaoling, a former deputy central bank governor said in remarks published on Monday.

"Currently, China's economy faces inflationary pressures as well as pressures on government debt, which means we cannot go down the road of expanding both credit and fiscal spending," the official Finance News quoted Wu as telling a forum.

Chinese policymakers should be "extremely wary" about the risk of government debt, said Wu, who is now a senior lawmaker.

China is trying to clean up the roughly 10.7 trillion yuan ($1.68 trillion) in local debt -- a hangover from a 4 trillion yuan economic stimulus package unveiled by Beijing in late 2008 to counter the global financial crisis.

China faces more economic challenges in the fourth quarter of this year and 2012, Wu said, adding that slower economic growth next year would be highly likely.

Weak global demand, government tightening steps to target the property sector and a slowdown in investment for highways and high-speed railways as could weigh on China's growth, she added.
Warning Far Too Late

Put that stimulus warning in the category labeled "ridiculously late". China's property bubble is in an extreme state, right at a time the entire global economy is slowing dramatically.

China Will Slow Far Faster Than Most Think

China's property bubble is set to implode, and when it does, the Chinese economy will cool far more than anyone thinks, taking commodities along for the ride. Commodity producers like Australia and Canada are at extreme risk as well.

Mike "Mish" Shedlock
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